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Old 06-18-2016, 09:52 AM   #21
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My very limited understanding is that the negative rates effect the institutions more because they are obligated to have a certain amount of assets in certain areas.

Even with millions an individual investor has more flexibility.

I think staying with asset allocation is probably OK because even though interest rates are low, that had to be compared to inflation, taxes, etc. What would suck is low rates and high inflation .

Personally I converted my bond holdings into CD ladders at 2% for 5 year CDs with a 6 month penalty. So if rates go up fast I can just pay the penalty.

That said its a personal decision that might be bad. Bond ETFs pay more than that and have a much smaller tax impact, but I'm concerned that rates will go up and bond funds will have a continued long term bad return. It seems near certain to me, but you know... been wrong a lot more than right in the past.

Guess we have to optimize around sleeping at night and I sleep well now

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Peter, low rates and relative high inflation have happened before. The decade of the 1940s had many years of 10 year Treasury running at times from 4% to 8% below inflation rate, as 10 year muddled along at near 2% levels due to Fed monetary intervention. Hmm, I could have sworn I heard the words "Federal monetary intervention" in recent years.


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Old 06-18-2016, 08:05 PM   #22
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I think a good study of what might happen is not Japan from 1989 onwards but the USSR. From 1919 to 1988 the Soviet Union had never had a recession, while their standard of living was lower than the US they and Japan were the 2 fastest growers of the period of 1919 to 1989 and actually their standard of living grew faster than the US throughout that period though they started at a much lower basis. Their central banks and planners carefully controlled and directed their economy in detail to avoid any serious recessions in order to maintain full employment for their citizens and avoid the ravages of unbridled capitalism. In 1989 the USSR had it’s first recession as too many of their assets were unproductive and unneeded and there was a drop in oil prices and the USSR could no longer borrow funds, and by 1991 the USSR had collapsed. 10 years later 1999 GDP in Russian was 50 percent of what it had been in 1989.

A long period of malinvestment led to unproductive assets that produced unneeded goods and too much debt. Factories closed --- by 1993 pensions, and lifetime savings of Russians citizens were devastated 40 percent of Russians officially lived in poverty. Government controls of industry, benefits and salaries ended as the government did not have the money to continue the economic control.

I don’t expect many here to follow or agree with this, and as the Central Banks have been masters of maintaining the economic illusion since 2008 I would not be totally surprised if this can be maintained for a period of years. But the day will arrive when the illusion can no longer be maintained and one can look at the Central planners of the Soviet Union and what happened in 1989 -1991 for a look at how fast a major modern economy can be totally uphended.

I continue to recommend the one portfolio that stands the test of time - Harry Browne’s Permanent Portfolio.
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Old 06-19-2016, 12:09 AM   #23
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I think a good study of what might happen is not Japan from 1989 onwards but the USSR. From 1919 to 1988 the Soviet Union had never had a recession, while their standard of living was lower than the US they and Japan were the 2 fastest growers of the period of 1919 to 1989 and actually their standard of living grew faster than the US throughout that period though they started at a much lower basis. Their central banks and planners carefully controlled and directed their economy in detail to avoid any serious recessions in order to maintain full employment for their citizens and avoid the ravages of unbridled capitalism. In 1989 the USSR had it’s first recession as too many of their assets were unproductive and unneeded and there was a drop in oil prices and the USSR could no longer borrow funds, and by 1991 the USSR had collapsed. 10 years later 1999 GDP in Russian was 50 percent of what it had been in 1989.

A long period of malinvestment led to unproductive assets that produced unneeded goods and too much debt. Factories closed --- by 1993 pensions, and lifetime savings of Russians citizens were devastated 40 percent of Russians officially lived in poverty. Government controls of industry, benefits and salaries ended as the government did not have the money to continue the economic control.

I don’t expect many here to follow or agree with this, and as the Central Banks have been masters of maintaining the economic illusion since 2008 I would not be totally surprised if this can be maintained for a period of years. But the day will arrive when the illusion can no longer be maintained and one can look at the Central planners of the Soviet Union and what happened in 1989 -1991 for a look at how fast a major modern economy can be totally uphended.

I continue to recommend the one portfolio that stands the test of time - Harry Browne’s Permanent Portfolio.
Yep. The future is totally unknowable. In terms of Russia, the period before was even crazier. Would have been hard to predict what was going to happen in 1920 when you were living in 1900 .

But I don't fully understand the Harry Browne conclusion. Isn't it 75% US (25 stocks, 25 bonds, 25 cash) and 25% precious metals (gold coins, etc)? If GDP cuts in half and you have 1 Mil It seems like you'd lose about 40% of your value... assuming that a GDP 50% haircut doesn't result in a greater than 50% cut in stocks and bonds. In the mean time the 25% cash/metals is a pretty big drag on market performance.

Don't get me wrong... it seems like a really good strategy, but I don't see how it would be good protection against something like a Soviet style collapse... not that I can suggest a better alternative :P
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Old 06-19-2016, 12:09 AM   #24
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Peter, low rates and relative high inflation have happened before. The decade of the 1940s had many years of 10 year Treasury running at times from 4% to 8% below inflation rate, as 10 year muddled along at near 2% levels due to Fed monetary intervention. Hmm, I could have sworn I heard the words "Federal monetary intervention" in recent years.


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Totally. I think the 1970s were also pretty bad in this area (though I didn't live through that). It CAN happen, and in fact I think it's more than unlikely to happen... I just HOPE it doesn't :P.
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Old 06-19-2016, 05:27 AM   #25
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I always hear phrase "federal monetary intervention" every decade I've been investing. It's what they do!
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Old 06-19-2016, 07:13 AM   #26
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+1.

I'd personally would be more worried if they didn't intervene.
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Strategy for neg. int. rates?
Old 06-19-2016, 11:15 AM   #27
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Strategy for neg. int. rates?

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Originally Posted by petershk View Post
Totally. I think the 1970s were also pretty bad in this area (though I didn't live through that). It CAN happen, and in fact I think it's more than unlikely to happen... I just HOPE it doesn't :P.


Yes, the 70s treasury rate lagged poorly behind inflation rate for much of the decade. The 80s caught the flip side with rates considerably above the inflation rate most of decade. I am aware of inflation, but I long ago quit the battle on fighting the 70s inflation war. My WIN pin (Whip Inflation Now for those who don't remember the slogan) has been permanently put away. Ive been largely in fixed perpetual preferreds that yield 6% plus investment grade and really don't worry about any rate scenario that would negate this built in yield advantage over present day inflation. They have been very good the past few years for me.


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Old 06-19-2016, 12:22 PM   #28
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I like finding little odds and ends ways to make or save money, so my ultimate stretch goal would be to have all those little income streams and expense cuts added up cover all our retirement expenses without much work, or hobby income of activities I would do even without pay. Then interest rates and the stock market can do what they will.
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Old 06-20-2016, 07:32 PM   #29
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Yet another whack at NIRP by a second analyst at CitiBank in as many days...

http://www.businessinsider.com/citi-...sider%20Select


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Old 06-20-2016, 09:00 PM   #30
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Current CD rates are already in negative. I think best way to deal with it is diversification: Real Estate, stocks, PMs, possibly land etc.
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